Alan Hanbury believes in the 10x10 principle, in which the owner of a remodeling business should aim for a net profit of 10% as well as keep up to 10% of the revenue as compensation.
But a new survey published by the National Association of Home Builders Remodelers, of which Hanbury is a former chairman, reveals that most remodelers fall far short of those goals.
The Remodelers Cost of Doing Business Study by the NAHB finds that, among the 185 remodelers surveyed, the average company posted a net profit of just 3% in 2011 and owners’ compensation totaled 6% of revenue.
This is the first time in eight years that the NAHB has done such a survey, and in all the major categories, conditions were slightly weaker. For instance, the average respondent reported $1.1 million in revenue in 2011 vs. $1.4 million in 2003. Gross profit margin shrank to 26.8% from 28.4%, and the 3% net profit in 2011 pales next to 2003’s 4.2% net.
As in 2003, the latest survey shows that the 25% of respondents with the best profit numbers were half as big as the 25% with the worst profits. In fact, while the upper quarter posted a 15.9% net profit on revenue of $650,000, the bottom 25% recorded a net loss of 3.7% on sales totaling $1.3 million. Include owners’ compensation with net profit and the percentage of revenue that landed in owners’ wallets rises to 22% for the top quarter vs. 3.7% for the bottom quarter.
Design/build firms recorded gross margins of 31% and net profit of 3.9% in 2011, while general remodelers were at just 22.2% and 1.8%, respectively. —Craig Webb, editor-in-chief, REMODELING.